Interest on client money

SA.05 — Interest on Client Money (SRA Accounts Rules)

The core duty. Under Rule 7.1 of the SRA Accounts Rules 2019, you must account to the client (or third party for whom the money is held) for a fair sum of interest on any client money you hold. This is a fair and reasonable obligation, not a duty to pay the exact interest actually earned on the firm's pooled client account.

Key points to nail:

• The obligation is to pay a fair sum, judged on all the circumstances (amount held, length of time, prevailing rates). The firm keeps the difference between actual bank interest and the fair sum paid out — that is permitted profit, not a breach.
• Good practice (and SRA guidance) expects the firm to have a written interest policy that seeks to provide a fair outcome, and to draw it to the client's attention. SQE candidates often forget the policy must be disclosed, not just held. (Note: the 2019 Rules are principles-based — the written-policy/disclosure expectation flows from the fair-sum duty in Rule 7.1 plus SRA guidance, not from a separate numbered sub-rule.)
• Contracting out is allowed. The firm and client may agree a different arrangement in writing — including paying no interest at all — provided the client has been given sufficient information to give informed consent. Sophisticated/commercial clients are commonly handled this way.

Where it is held — the key 2019 change:

• Under the SRA Accounts Rules 2019, the fair-sum standard under Rule 7.1 applies to all client money you hold — whether in a general (pooled) client account or in a separate designated client account for one client. There is now a single "fair sum" test.
• This is a trap for candidates working from old materials. Under the previous 2011 Rules (Rule 22), money in a separate designated deposit account attracted all the interest actually earned, while the general account attracted a fair sum. The 2019 rewrite abolished that distinction. Do not say a designated account entitles the client to all actual interest under the current rules.

De-minimis / holding money outside a client account: the 2019 Rules dropped the old fixed-figure thresholds (e.g. the former £500 small-balance limit) in favour of a principles-based approach. Interest under Rule 7.1 is a separate question from where money is held — don't conflate the two, and don't import the old £500 figure as if it were a live Rule.

Common traps:

• Saying the client gets all interest actually earned where money sits in a separate designated account — that was the 2011 position; under the 2019 Rules it is a fair sum either way.
• Forgetting that no interest can be validly agreed if the client consents on full information.
• Treating Rule 7.1 as discretionary — the duty to account for a fair sum is mandatory absent a valid written agreement.
• Confusing client account interest with the firm's own business-account interest (firm keeps that).

Day-one-NQ check: Is it client money? Is there a written, disclosed interest policy or a valid contracting-out agreement? If not, account for a fair sum under Rule 7.1 — and remember that under the current (2019) Rules the fair-sum test applies whether the money sat in a general or a separate designated client account.